Wednesday, 27 April 2011

UK GDP not shock - 0.5% growth

Not great form for George Osborne to be front running the GDP numbers at Cabinet yesterday. Still the news is really as expected, with growth at 0.5% a decent start to the year.

The 'growth' spurt given by the pumping in of QE money and exorbitant Government spending is over and now we are left with the underlying private sector growth trying to outdo the very modest public sector contraction.

In real terms its rubbish because inflation is at 4% (UPDATE re comments, constant prices are compared to CPI not RPI, so the disparity is messing with the figures) so any growth this year under that is a decline in real terms on an RPI basis, on the plus side a low pound could re-value and alter the equation but ultra-low interest rates are not going to encourage that.

In the long-term, all is not so bad for macro-economic Britain, the deficit is being eaten into and the tax base will start to grow substantially and close the structural deficit as the Public Sector is shrunk over time.

Politically who would have thought that the Lib Dems hold the keys to the future of the UK a couple of years ago, if they fall apart and the Coalition fails then Labour will be back in and mess everything up again!

GDP in real terms still needs to compare to actual prices - to get real terms increases you need to know what inflation is/was.

So the Government's chosen method is as usual CPI. This does give an accurate historical record - but as we all know removing houseing cost in an in economy where housing is a substantial chunk of the economy is a poor measure.

CPI and RPi are different by more than 2% currently - i.e. more than UK projected GDP growth.

If the LibDems hold the future of the economy in their hands, why is Cameron going out of his way to piss them off at the moment? Seems catastrophically stupid to me, but perhaps that's par for the course for politicians of any stripe.

I read somewhere that housing costs will be included in the CPI in the future.

On my preferred 'how hard is it to get a table at a restauraunt in Bristol on a saturday without booking index', I think there definitely is a recovery in progress, but the good times are nowhere near back.

Cameron can piss the LibDem's off as much as he likes. He knows and, more to the point, the LibDems know that a general election now would see the LibDem's parliamentary party just large enough to fill a London taxi.

Even if the LibDems were to change sides without an election it would give a Lab-LibDem coalition a majority (from memory) of less than 10 in the Commons. Such a majority would make it difficult for a single party and next to impossible for a coalition to function.